Key shareholders are throwing their weight behind plans by the
Andean Development Corporation (CAF) to increase its capital
CAFs board approved the request for an extra $2 billion
from its 18 shareholder nations last week.
And in Medellin yesterday, Oscar Zuluaga, Colombias
finance minister, told Emerging Markets: Colombia
supports the CAFs plan to increase its capital base. We
believe that multilateral banks need to strengthen their assets
to increase their leverage.
In an interview, CAF president Enrique Garcia denied that
competition from the IDB for extra funding from cash-strapped
governments in the region would undermine his lobbying efforts.
Whenever we have asked for fresh capital, member states
have committed, he told Emerging Markets. We are
asking [for] a capital increase so we can become a bigger
player in the region.
CAFs lending is dominated by its Andean member states
Bolivia, Colombia, Ecuador, Peru and Venezuela. 11 other
countries in the region are also represented.
Garcia says CAF aims to act as a counter-cyclical lender this
year, providing short-term liquidity facilities for the balance
of payments needs of its member states. He aims to grow the
loan portfolio by 12% annually for the next few years.
In February, CAF provided Peru with a $400 million contingency
loan, as part of $1.5 billion of credit lines pledged in
October 2008. Last year, the Caracas-based lenders loan
portfolio was a record $9.78 billion. It has $13.5 billion of
assets in total.
CAF has around $9 billion of loan commitments this year, Garcia
said. It is registering record demand for its long-term
infrastructure loans and its cheap lines of short-term credit
for commercial and development banks at interest rates of
around 250 basis points over Libor.
In 2007, CAFs members agreed to double its authorized
capital to $10 billion in the coming years $6.5 billion
paid in, and the rest callable capital.
In December, Standard & Poors revised its outlook for
CAFs A1 rating from stable to negative, citing the
declining creditworthiness of the heterodox economies of
Venezuela and Ecuador. Lending to Ecuadors public and
private sectors accounts for 20.8% of CAFs loan portfolio
and constitutes CAFs single largest country exposure.
Earlier this month, CAF approved a $100 million credit loan to
Ecuador while the sovereign continues to defy foreign investors
by defaulting on bonds issued in international markets.
Larry Hays, Latin American sovereign credit analyst at Standard
& Poors, said: Despite CAFs strong
capital base, the credit risk on its loan portfolio has risen,
while its Andean shareholders are set for an economic
But Garcia argued that CAF has the status as credit of choice
for its five Andean members, representing 62% of all
multilateral lending last year versus 35% from the IDB.
CAF is the only multilateral that is really owned by
developing countries and our member states are very loyal and
thats why we have had no history of a country defaulting
on its loan obligations to CAF.
While the IDB suffered $1 billion losses on its portfolio last
year, CAF accrued a net return on investments of around $320
million last year.